One of the problems related to aging is the public’s general lack of financial knowledge.
Financial knowledge, particularly among people nearing retirement age, is not very high, says Pierre-Carl Michaud, professor in the department of applied economics at HEC Montréal. “There are huge gaps. We know that old people prefer not to talk about these subjects. It has been well documented that cognitive decline begins at age 60,” he says.
Workers who contributed to a pension plan throughout their career, and thus accumulated several hundreds of thousands of dollars in savings, face difficult decisions.
Do good savings habits go hand in hand with an above-average level of financial education? “Yes, but it depends on how they accumulated their savings,” Michaud points out. “People may know the savings basics, but less about the tax aspects related to disbursement.”
Knowledge of different aspects of retirement varies. When they reach age 65, people are not sure how much longer they will live, how long they will remain healthy, or their risks of dependency in later years.
“Our study found an estimation of 25 per cent, but it may go up to 40 per cent. If I need the product, how much will it cost? How do I evaluate the cost of an annuity, how it works? These are all important issues,” he says
Although financial advisors are generally knowledgeable about the impact of the solutions available to their clients, insurance products are often complex, Michaud continues. “Say I am a 60-year-old man who is offered a long-term care insurance product at a premium of $200 per month, can I judge whether or not the price is fair?”
When offered an extended guarantee for a consumer good, customers can assess the relevance of the coverage compared to the real value of the good. In insurance, this is more complicated, Michaud continues.
“We have to find new ways to communicate information on risks related to health, so that people can make informed decisions. More information is needed not only in the public domain, but also to better equip advisors. They can always use more tools.”